Small Cap Value heads Rejoice !!!

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XacTactX
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Re: Small Cap Value heads Rejoice !!!

Post by XacTactX »

manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
At least in the past 25 years, if you removed emerging markets from your portfolio it made very little difference.

https://www.portfoliovisualizer.com/bac ... tion3_1=10

I'm not sure how things will look in the future because EM has a positive outlook right now, and you are using EM SCV. If it's not a huge hassle for you I would suggest holding EM, it's a small opportunity to add diversification
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manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

XacTactX wrote: Mon Sep 28, 2020 1:08 pm
manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
At least in the past 25 years, if you removed emerging markets from your portfolio it made very little difference.

https://www.portfoliovisualizer.com/bac ... tion3_1=10

I'm not sure how things will look in the future because EM has a positive outlook right now, and you are using EM SCV. If it's not a huge hassle for you I would suggest holding EM, it's a small opportunity to add diversification
Thanks for the reply!

I hold EM via my $VT allocation (which is 50% of my portfolio, the other being the 50/40/10 allocation I just asked about). I assume when you say you would suggest I hold EM, do you mean continuing to hold small cap value EM? Could I just add some AVEM at a much lower ER to buff up my EM allocation?
XacTactX
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Re: Small Cap Value heads Rejoice !!!

Post by XacTactX »

Yes I think AVEM is a good choice for EM value. Larry Swedroe and Andrew Berkin just released The Incredible Shrinking Alpha 2nd. Ed and they recommend AVEM for emerging markets, it's in the same category as DFEVX and FNDE, it is in good company. Choosing between DGS and AVEM, I think both are good choices, you could choose whichever one seems better to you
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vineviz
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

manlymatt83 wrote: Mon Sep 28, 2020 1:10 pm I hold EM via my $VT allocation (which is 50% of my portfolio, the other being the 50/40/10 allocation I just asked about). I assume when you say you would suggest I hold EM, do you mean continuing to hold small cap value EM? Could I just add some AVEM at a much lower ER to buff up my EM allocation?
If you have VT at 50% of the total portfolio, my opinion is that the other sleeve would be better with a more equal allocation to AVUV, AVDV, and AVEM (e.g. 20/15/15)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

vineviz wrote: Mon Sep 28, 2020 1:22 pm
manlymatt83 wrote: Mon Sep 28, 2020 1:10 pm I hold EM via my $VT allocation (which is 50% of my portfolio, the other being the 50/40/10 allocation I just asked about). I assume when you say you would suggest I hold EM, do you mean continuing to hold small cap value EM? Could I just add some AVEM at a much lower ER to buff up my EM allocation?
If you have VT at 50% of the total portfolio, my opinion is that the other sleeve would be better with a more equal allocation to AVUV, AVDV, and AVEM (e.g. 20/15/15)
Intriguing! So don't weight the other sleeve against world market cap?
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I don't like DGS' expense ratio and high tax costs, personally. I also don't like AVEM. I've generated simulated data back to 2005 based on its methodology, and regressing it seems to produce pretty underwhelming factor loads. When you look at Morningstar's factor style for the fund, you see they also rank it pretty "meh" in value and quality:
https://www.morningstar.com/etfs/arcx/avem/portfolio

I have found a combination of FNDE and EMGF to be a slightly stronger factor load overall than AVEM. Since you're looking to simplify, I would either not hold any at all, or just hold either FNDE or EMGF.

Just my 2 cents.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

manlymatt83 wrote: Mon Sep 28, 2020 1:24 pm
vineviz wrote: Mon Sep 28, 2020 1:22 pm
manlymatt83 wrote: Mon Sep 28, 2020 1:10 pm I hold EM via my $VT allocation (which is 50% of my portfolio, the other being the 50/40/10 allocation I just asked about). I assume when you say you would suggest I hold EM, do you mean continuing to hold small cap value EM? Could I just add some AVEM at a much lower ER to buff up my EM allocation?
If you have VT at 50% of the total portfolio, my opinion is that the other sleeve would be better with a more equal allocation to AVUV, AVDV, and AVEM (e.g. 20/15/15)
Intriguing! So don't weight the other sleeve against world market cap?
I think everyone has their own opinion on this question. Even though I tilt I do try and stay fairly close to market caps. I'm 50% US/50%International and within my tilted funds I try and be 3/1 Developed to EM (so 37.5% to 12.5%). I get my EM through DFEVX and AVEM.

EMGF kinda scares me with its 53% turnover. I would expect AVEM to be much closer to DFA EM Core which is 4% turnover.
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vineviz
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

manlymatt83 wrote: Mon Sep 28, 2020 1:24 pm Intriguing! So don't weight the other sleeve against world market cap?
I don't see any reason to do that. World market cap weights don't hold any special importance except in managing cost/turnover, and applying a multi-factor approach to half of your portfolio you've already tacitly expressed a belief that your risk preferences/tolerances don't match the representative investor.
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

Steve Reading wrote: Mon Sep 28, 2020 1:35 pm
manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I don't like DGS' expense ratio and high tax costs, personally. I also don't like AVEM. I've generated simulated data back to 2005 based on its methodology, and regressing it seems to produce pretty underwhelming factor loads. When you look at Morningstar's factor style for the fund, you see they also rank it pretty "meh" in value and quality:
https://www.morningstar.com/etfs/arcx/avem/portfolio

I have found a combination of FNDE and EMGF to be a slightly stronger factor load overall than AVEM. Since you're looking to simplify, I would either not hold any at all, or just hold either FNDE or EMGF.

Just my 2 cents.
I don't like the existing EM SCV funds (or lack thereof). I sometimes entertain the idea of purchasing DGS, but I have yet to bother and continue purchasing more AVDV which is developed market intl instead.

I'm open to getting one in the future and sometimes wonder if I'm going to miss out on some outperformance.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Massdriver wrote: Mon Sep 28, 2020 2:00 pm
Steve Reading wrote: Mon Sep 28, 2020 1:35 pm
manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I don't like DGS' expense ratio and high tax costs, personally. I also don't like AVEM. I've generated simulated data back to 2005 based on its methodology, and regressing it seems to produce pretty underwhelming factor loads. When you look at Morningstar's factor style for the fund, you see they also rank it pretty "meh" in value and quality:
https://www.morningstar.com/etfs/arcx/avem/portfolio

I have found a combination of FNDE and EMGF to be a slightly stronger factor load overall than AVEM. Since you're looking to simplify, I would either not hold any at all, or just hold either FNDE or EMGF.

Just my 2 cents.
I don't like the existing EM SCV funds (or lack thereof). I sometimes entertain the idea of purchasing DGS, but I have yet to bother and continue purchasing more AVDV which is developed market intl instead.

I'm open to getting one in the future and sometimes wonder if I'm going to miss out on some outperformance.
Based on Morningstar's grid, looks like AVEM could be a happy medium between what you'd get from exposure via something like VXUS and DGS?
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Re: Small Cap Value heads Rejoice !!!

Post by 000 »

Forester wrote: Mon Sep 28, 2020 3:24 am More a source of differentiated returns than a quest to beat the market. Splitting my equities threeways SCV-Momentum-MinVol is the best plan I can arrive at, having examined all the evidence.
Thanks. That makes sense.
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Re: Small Cap Value heads Rejoice !!!

Post by Cantrip »

YRT70 wrote: Mon Sep 28, 2020 6:49 am I was looking at a period where SCV did well, 2001-2005 on PortfolioVisualiser. Something that surprised me:

CAGR 2001-2005
67% IJS, 33% VTSMX: 8.6%
38% DFSVX, 62% VTSMX: 8.6%
https://www.portfoliovisualizer.com/bac ... tion3_3=33

So to match the performance of DFSVX in this period a large amount of IJS is necessary. But when I run match portfolio performance on PV it gives VTSMX=57.53%, IJS=42.47%, instead of 67% IJS. The performance of the 42% IJS portfolio doesn't come close to the 38% DFSVX portfolio in this period.
https://www.portfoliovisualizer.com/mat ... tion2_1=38

Anyone know what's going on?
The S&P600 value index had almost -5% alpha per year over that period under a 5 factor method, while the dfa product had positive alpha. The negative alpha of the s&p 600 value index over that period almost met statistical significance. Vanguard changed their small value fund from the s&p 600 value to the MSCI small value index during this time period.

So to answer your question. Because of the -5% alpha per year, it took a lot more IJS to match DFSVX during the 2000-2005 time period. However it was likely a random event that will not be repeated, and so I would use the longest term factor data you have in selecting your tilt.

As an aside, I prefer the CRSP Small value index to the s&p 600 value index for this (and other) reasons. Its broader diversification should prevent such large swings into negative (or positive) alpha.
Last edited by Cantrip on Tue Sep 29, 2020 11:59 pm, edited 1 time in total.
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

Cantrip wrote: Mon Sep 28, 2020 8:23 pm
YRT70 wrote: Mon Sep 28, 2020 6:49 am I was looking at a period where SCV did well, 2001-2005 on PortfolioVisualiser. Something that surprised me:

CAGR 2001-2005
67% IJS, 33% VTSMX: 8.6%
38% DFSVX, 62% VTSMX: 8.6%
https://www.portfoliovisualizer.com/bac ... tion3_3=33

So to match the performance of DFSVX in this period a large amount of IJS is necessary. But when I run match portfolio performance on PV it gives VTSMX=57.53%, IJS=42.47%, instead of 67% IJS. The performance of the 42% IJS portfolio doesn't come close to the 38% DFSVX portfolio in this period.
https://www.portfoliovisualizer.com/mat ... tion2_1=38

Anyone know what's going on?
The S&P600 value index had almost -5% alpha per year over that period under a 5 factor method, while the dfa product had positive alpha. The negative alpha of the s&p 600 value index over that period almost met statistical significance, and likely contributed to why Vanguard changed their small value fund from the s&p 600 value to the MSCI small value index.

I prefer the CRSP Small value index to the s&p 600 value index for this (and other) reasons. Its broader diversification prevents such negative (or positive) alpha.
Anyone know why dfsvx numbers are dramatically different on google vs on portfolio visualizer/M*

The dividends make up that big of a difference? Like over double the return
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I understand that the expense ratio of DGS looks very unappealing but I think the expected outperformance of EM small/value could make up for it.

Historically DGS has outperformed VEIEX, FNDE and DFEVX (which I think is comparable to AVEM) in spite of its higher expense ratio.
https://www.portfoliovisualizer.com/bac ... mbol4=FNDE
Random Walker
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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker »

texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
Hard to argue with you. And impossible to argue with you over the given time frame, 2007-2020. But important to appreciate that this last decade has been quite extraordinary for S&P 500. The gains have been spectacular with spectacularly low volatility. The below article puts the S&P500 behavior in some historic context.

Dave

http://multifactorworld.com/the-sp-500-goes-supernova/
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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
In the 1970s US LT bonds lost 9% annually after inflation, US large cap lost 4%. It's an efficient portfolio - at losing money if stocks & bonds both fail.
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Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

Random Walker wrote: Tue Sep 29, 2020 8:17 am
texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
Hard to argue with you. And impossible to argue with you over the given time frame, 2007-2020. But important to appreciate that this last decade has been quite extraordinary for S&P 500. The gains have been spectacular with spectacularly low volatility. The below article puts the S&P500 behavior in some historic context.

Dave

http://multifactorworld.com/the-sp-500-goes-supernova/
Thank you for the article and interesting perspective. Would be great to have a comparison to SCV. It makes me wonder if all the people who are currently pointing to the last decade as to why one ought to avoid SCV are unaware of the rarity of the situation they are referencing.
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Re: Small Cap Value heads Rejoice !!!

Post by texasfight »

Forester wrote: Tue Sep 29, 2020 10:15 am
texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
In the 1970s US LT bonds lost 9% annually after inflation, US large cap lost 4%. It's an efficient portfolio - at losing money if stocks & bonds both fail.
If a VTI (or S&P 500) and US treasury bond portfolio fails to go up and to the right for the next decade, US undergoes a sovereign default and your small cap value stocks will be worth $0. Most people don't grasp the situation we are in. I will keep an eye on US fiscal policy (that is the only thing that can turn around the massive deflationary forces in the economy)
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

texasfight wrote: Tue Sep 29, 2020 11:30 am
Forester wrote: Tue Sep 29, 2020 10:15 am
texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
In the 1970s US LT bonds lost 9% annually after inflation, US large cap lost 4%. It's an efficient portfolio - at losing money if stocks & bonds both fail.
If a VTI (or S&P 500) and US treasury bond portfolio fails to go up and to the right for the next decade, US undergoes a sovereign default and your small cap value stocks will be worth $0. Most people don't grasp the situation we are in. I will keep an eye on US fiscal policy (that is the only thing that can turn around the massive deflationary forces in the economy)
US small cap stocks beat large cap stocks by 5.5% annually in the 1970s and by 5% annually in the 2000s.
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Re: Small Cap Value heads Rejoice !!!

Post by texasfight »

Forester wrote: Tue Sep 29, 2020 11:47 am
texasfight wrote: Tue Sep 29, 2020 11:30 am
Forester wrote: Tue Sep 29, 2020 10:15 am
texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
In the 1970s US LT bonds lost 9% annually after inflation, US large cap lost 4%. It's an efficient portfolio - at losing money if stocks & bonds both fail.
If a VTI (or S&P 500) and US treasury bond portfolio fails to go up and to the right for the next decade, US undergoes a sovereign default and your small cap value stocks will be worth $0. Most people don't grasp the situation we are in. I will keep an eye on US fiscal policy (that is the only thing that can turn around the massive deflationary forces in the economy)
US small cap stocks beat large cap stocks by 5.5% annually in the 1970s and by 5% annually in the 2000s.
And then everything changed and the economy has been completely different since with velocity of money collapsing, US household debt to income dropping significantly, savings rate up, and collapsing inflation, real rates, and GDP growth.
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vineviz
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

texasfight wrote: Tue Sep 29, 2020 12:06 pm
Forester wrote: Tue Sep 29, 2020 11:47 am US small cap stocks beat large cap stocks by 5.5% annually in the 1970s and by 5% annually in the 2000s.
And then everything changed and the economy has been completely different since with velocity of money collapsing, US household debt to income dropping significantly, savings rate up, and collapsing inflation, real rates, and GDP growth.
Right, because "this time it is different" ALWAYS works out well for investors.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

texasfight wrote: Tue Sep 29, 2020 11:30 am
Forester wrote: Tue Sep 29, 2020 10:15 am
texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
In the 1970s US LT bonds lost 9% annually after inflation, US large cap lost 4%. It's an efficient portfolio - at losing money if stocks & bonds both fail.
If a VTI (or S&P 500) and US treasury bond portfolio fails to go up and to the right for the next decade, US undergoes a sovereign default and your small cap value stocks will be worth $0. Most people don't grasp the situation we are in. I will keep an eye on US fiscal policy (that is the only thing that can turn around the massive deflationary forces in the economy)
Holy false dichotomy, batman. There were 3 periods of at least 13-years in the last 100 years where the S&P500 returned less than riskless 1-month T-Bills. And you claim that if a S&P500+Long term treasury portfolio returns <=0% in 10 years the only possibility is US sovereign default?
I'm just a fan of the person I got my user name from
texasfight
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Re: Small Cap Value heads Rejoice !!!

Post by texasfight »

vineviz wrote: Tue Sep 29, 2020 12:11 pm
texasfight wrote: Tue Sep 29, 2020 12:06 pm
Forester wrote: Tue Sep 29, 2020 11:47 am US small cap stocks beat large cap stocks by 5.5% annually in the 1970s and by 5% annually in the 2000s.
And then everything changed and the economy has been completely different since with velocity of money collapsing, US household debt to income dropping significantly, savings rate up, and collapsing inflation, real rates, and GDP growth.
Right, because "this time it is different" ALWAYS works out well for investors.
Past results are not indicative of future performance either. I get that this can apply to growth right now, but small cap value was supposed to be a free lunch based on backtests. Times were very different back then.
texasfight
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Re: Small Cap Value heads Rejoice !!!

Post by texasfight »

Day9 wrote: Tue Sep 29, 2020 12:23 pm
texasfight wrote: Tue Sep 29, 2020 11:30 am
Forester wrote: Tue Sep 29, 2020 10:15 am
texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
In the 1970s US LT bonds lost 9% annually after inflation, US large cap lost 4%. It's an efficient portfolio - at losing money if stocks & bonds both fail.
If a VTI (or S&P 500) and US treasury bond portfolio fails to go up and to the right for the next decade, US undergoes a sovereign default and your small cap value stocks will be worth $0. Most people don't grasp the situation we are in. I will keep an eye on US fiscal policy (that is the only thing that can turn around the massive deflationary forces in the economy)
Holy false dichotomy, batman. There were 3 periods of at least 13-years in the last 100 years where the S&P500 returned less than riskless 1-month T-Bills. And you claim that if a S&P500+Long term treasury portfolio returns <=0% in 10 years the only possibility is US sovereign default?
Nominal vs. real returns. Basically if the US fails to devalue its currency vs. asset prices. How else are we going to pay for multi trillion dollar deficits and $140 trillion in unfunded liabilities? inflation linked entitlements are an issue with this strategy, but we all know that the CPI adjustments will be fair :wink:
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Taylor Larimore
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Simplicity

Post by Taylor Larimore »

Bogleheads:

I recently posted "Investment Gems" from a new book, "My Financial Toolbox," written by Boglehead "tfb". It is a great book and contains this advice:
"When you build a 3-fund portfolio, you come up with the percentages for each component by answering these two questions: (1) How much in stocks? (2) Among stocks, how much in international" That's it. You don't have to make it any more complicated than that."

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

YRT70 wrote: Tue Sep 29, 2020 1:03 am
manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I understand that the expense ratio of DGS looks very unappealing but I think the expected outperformance of EM small/value could make up for it.

Historically DGS has outperformed VEIEX, FNDE and DFEVX (which I think is comparable to AVEM) in spite of its higher expense ratio.
https://www.portfoliovisualizer.com/bac ... mbol4=FNDE
I only have room in my taxable for DGS. Would the higher ER and dividend offset the benefits of just using something simple like AVEM? I am also open to a fund that tilts more to small than AVEM without using dividends as a means for defining value.

Curious what others are doing who hold AVUV/AVDV or something similar like SLYV/DLS.
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Re: Simplicity

Post by abuss368 »

Taylor Larimore wrote: Tue Sep 29, 2020 12:37 pm Bogleheads:

I recently posted "Investment Gems" from a new book, "My Financial Toolbox," written by Boglehead "tfb". It is a great book and contains this advice:
"When you build a 3-fund portfolio, you come up with the percentages for each component by answering these two questions: (1) How much in stocks? (2) Among stocks, how much in international" That's it. You don't have to make it any more complicated than that."

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom."
Excellent advice. Many investors would be wise to simplify their portfolios to the Three Fund Portfolio.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Simplicity

Post by Forester »

abuss368 wrote: Tue Sep 29, 2020 1:35 pm
Taylor Larimore wrote: Tue Sep 29, 2020 12:37 pm Bogleheads:

I recently posted "Investment Gems" from a new book, "My Financial Toolbox," written by Boglehead "tfb". It is a great book and contains this advice:
"When you build a 3-fund portfolio, you come up with the percentages for each component by answering these two questions: (1) How much in stocks? (2) Among stocks, how much in international" That's it. You don't have to make it any more complicated than that."

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom."
Excellent advice. Many investors would be wise to simplify their portfolios to the Three Fund Portfolio.
Wouldn't VT be simpler than VTI + VXUS?

Choosing the proportion of US to ex-US is no more or less arbitrary than deciding the proportion of global large cap to global small cap.
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Re: Small Cap Value heads Rejoice !!!

Post by LadyGeek »

The discussion is getting derailed (total market approach).

Please stay on-topic, which is focused on small-cap value.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

manlymatt83 wrote: Tue Sep 29, 2020 1:25 pm
YRT70 wrote: Tue Sep 29, 2020 1:03 am
manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I understand that the expense ratio of DGS looks very unappealing but I think the expected outperformance of EM small/value could make up for it.

Historically DGS has outperformed VEIEX, FNDE and DFEVX (which I think is comparable to AVEM) in spite of its higher expense ratio.
https://www.portfoliovisualizer.com/bac ... mbol4=FNDE
I only have room in my taxable for DGS. Would the higher ER and dividend offset the benefits of just using something simple like AVEM? I am also open to a fund that tilts more to small than AVEM without using dividends as a means for defining value.

Curious what others are doing who hold AVUV/AVDV or something similar like SLYV/DLS.
I used DGS for about 8 years and decided I wasn't comfortable with the turnover and general approach and moved to all cap value via DFEVX (hasn't worked out yet lol). I've heard that the transaction costs in the small cap EM space are significant.

I'm going to use AVEM until I feel better about a commercial option. EMGF will likely be the tax loss harvest partner. I do wish Avantis would have just come out with a SCV EM fund.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

caklim00 wrote: Tue Sep 29, 2020 2:51 pm
manlymatt83 wrote: Tue Sep 29, 2020 1:25 pm
YRT70 wrote: Tue Sep 29, 2020 1:03 am
manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I understand that the expense ratio of DGS looks very unappealing but I think the expected outperformance of EM small/value could make up for it.

Historically DGS has outperformed VEIEX, FNDE and DFEVX (which I think is comparable to AVEM) in spite of its higher expense ratio.
https://www.portfoliovisualizer.com/bac ... mbol4=FNDE
I only have room in my taxable for DGS. Would the higher ER and dividend offset the benefits of just using something simple like AVEM? I am also open to a fund that tilts more to small than AVEM without using dividends as a means for defining value.

Curious what others are doing who hold AVUV/AVDV or something similar like SLYV/DLS.
I used DGS for about 8 years and decided I wasn't comfortable with the turnover and general approach and moved to all cap value via DFEVX (hasn't worked out yet lol). I've heard that the transaction costs in the small cap EM space are significant.

I'm going to use AVEM until I feel better about a commercial option. EMGF will likely be the tax loss harvest partner. I do wish Avantis would have just come out with a SCV EM fund.
What's your allocation of DFEVX to AVEM? Or are you saying you'll use AVEM/EMGF from now on in lieu of DFEVX?
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

I asked Larry about DGS vs AVEM on Twitter. He replied:
Cannot mention every single one that worth looking at. DGS is fine, but ER at 63bp vs 33bp is significant difference. Fundamental EM fund is also in similar vein. FNDE at just 39bp. Larry
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Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

Are we able to commence the rejoicing?
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

manlymatt83 wrote: Wed Sep 30, 2020 12:22 pm I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
I might end up with the same 3 funds but I'll just hold them at market cap. I see no reason to deviate. I understand other people might feel different. I'm from the Netherlands though. Small country.
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

manlymatt83 wrote: Wed Sep 30, 2020 12:22 pm I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
IMO this is an excellent portfolio if you are convinced in positive future value premiums, but are you 100% confident in your ability to not capitulate if this spends the next 10 years still trailing growth?

I personally believe in a value premium resurgance and tilt quite heavily, but even I hold ~33% total market to reduce tracking error a bit (and in case I'm wrong).
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

HippoSir wrote: Wed Sep 30, 2020 12:59 pm
manlymatt83 wrote: Wed Sep 30, 2020 12:22 pm I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
IMO this is an excellent portfolio if you are convinced in positive future value premiums, but are you 100% confident in your ability to not capitulate if this spends the next 10 years still trailing growth?

I personally believe in a value premium resurgance and tilt quite heavily, but even I hold ~33% total market to reduce tracking error a bit (and in case I'm wrong).
Sorry! To further clarify what I meant by "with my tilt at...", my tilt is 30% of my portfolio. The other 70% is all in on VT.
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

manlymatt83 wrote: Wed Sep 30, 2020 12:22 pm I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
Hi Matt just want to let you know I have the same allocation so cheers to both of us in this same boat and let's enjoy the ride together! I am 40/40/20 US/Intl Developed/EM. My portfolio is about half 401k half taxable/IRA. Outside of 401k I am AVUV and IJS for domestic, though considering switching this all to AVUV. I am all AVDV for Int'l developed. And my emerging markets allocation is all in a 401k in DFEVX DFA Emerging Markets Value. My other 401k funds don't tilt as strongly as these.

I haven't mentioned this in a long time but Larry Swedroe once said on this forum something like: World market cap is about 50/50 US, rest of world [at the time that was accurate, today is is 60/40], and 1/4 of int'l is emerging market. So you could go say 40/60 US/Intl, with 1/3 of Int'l in Emerging markets. But be sure you can handle that tracking error.

So he gave his blessing for the allocation we use. 40/40/20. Though like I said that was when US 50% of market cap instead of ~60% as it is today, and I haven't asked him for an update on this allocation since then. I have been able to stay the course despite the S&P 500 returning much more. Good luck to both of us! :beer
I'm just a fan of the person I got my user name from
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Day9 wrote: Wed Sep 30, 2020 1:38 pm
manlymatt83 wrote: Wed Sep 30, 2020 12:22 pm I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
Hi Matt just want to let you know I have the same allocation so cheers to both of us in this same boat and let's enjoy the ride together! I am 40/40/20 US/Intl Developed/EM. My portfolio is about half 401k half taxable/IRA. Outside of 401k I am AVUV and IJS for domestic, though considering switching this all to AVUV. I am all AVDV for Int'l developed. And my emerging markets allocation is all in a 401k in DFEVX DFA Emerging Markets Value. My other 401k funds don't tilt as strongly as these.

I haven't mentioned this in a long time but Larry Swedroe once said on this forum something like: World market cap is about 50/50 US, rest of world [at the time that was accurate, today is is 60/40], and 1/4 of int'l is emerging market. So you could go say 40/60 US/Intl, with 1/3 of Int'l in Emerging markets. But be sure you can handle that tracking error.

So he gave his blessing for the allocation we use. 40/40/20. Though like I said that was when US 50% of market cap instead of ~60% as it is today, and I haven't asked him for an update on this allocation since then. I have been able to stay the course despite the S&P 500 returning much more. Good luck to both of us! :beer
Thanks for the information! :sharebeer :!:
absolute zero
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Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

manlymatt83 wrote: Wed Sep 30, 2020 12:22 pm I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
I think low/moderate ER’s (Like the funds you’ve chosen) make it easier to stick to a plan. If a fund underperforms AND I can easily calculate that it’s costing me hundreds of dollars per year in expenses (for example, DGS) then I think I’d be a lot more tempted to dump it and change my plan.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

absolute zero wrote: Wed Sep 30, 2020 2:11 pm
manlymatt83 wrote: Wed Sep 30, 2020 12:22 pm I was having trouble deciding whether or not to just hold AVUV/AVDV without my DGS allocation, or to somehow factor DGS in at Merriman's recommended 50/40/10 split.

Decided to split the difference - dumped DGS because I can only hold it in a taxable and turnover is high. Instead, added AVEM at twice the weight. So ended up with my tilt at:

40% AVUV
40% AVDV
20% AVEM

Simple, concise, something I believe I can stick to. Yes, I'm missing out on emerging market small value, but that high ER of DGS was too much for me to stomach.
I think low/moderate ER’s (Like the funds you’ve chosen) make it easier to stick to a plan. If a fund underperforms AND I can easily calculate that it’s costing me hundreds of dollars per year in expenses (for example, DGS) then I think I’d be a lot more tempted to dump it and change my plan.
Agree entirely! Mojotrojan made a point at owning VBR. I could have just as easily picked VBR and added 10% or so to my tilt. DGS expense ratio is just too high for me, no matter the performance.
kolder
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Re: Small Cap Value heads Rejoice !!!

Post by kolder »

Here's mine:

35% FSKAX
10% FTIHX
35% AVUVX
10% AVDVX
5% AVEEX
5% SFENX
(etf equivalents in ira)

Overall ER: .17
70/30 US/Int
50/50 TSM/SCV

rough attempt at a backtest: https://www.portfoliovisualizer.com/bac ... tion5_2=30

tempted to consolidate my EM to just SFENX, hopefully Avantis creates a SCV fund for EM at some point.
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Re: Small Cap Value heads Rejoice !!!

Post by Robert T »

.
Bogle Jr. vs. Bogle Sr.

October 1999 – August 2020: Annualized return / Sharpe Ratio
And despite its name BOGIX has a small cap value tilt
https://www.portfoliovisualizer.com/fac ... sion=false

Earlier article: In Bogle Family, It's Either Passive or Aggressive
https://boglefunds.com/uploads/news/In_ ... _-_WSJ.pdf
.
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

manlymatt83 wrote: Tue Sep 29, 2020 3:19 pm
caklim00 wrote: Tue Sep 29, 2020 2:51 pm
manlymatt83 wrote: Tue Sep 29, 2020 1:25 pm
YRT70 wrote: Tue Sep 29, 2020 1:03 am
manlymatt83 wrote: Mon Sep 28, 2020 12:57 pm In trying to further simplify, if I hold 50% AVUV, 40% AVDV, and 10% DGS, can I just dump the DGS allocation? I realize AVDV doesn't have emerging markets, but is the 10% really going to make that much of a difference? Or perhaps add a little AVEM at a much lower ER (even though it isn't small cap).
I understand that the expense ratio of DGS looks very unappealing but I think the expected outperformance of EM small/value could make up for it.

Historically DGS has outperformed VEIEX, FNDE and DFEVX (which I think is comparable to AVEM) in spite of its higher expense ratio.
https://www.portfoliovisualizer.com/bac ... mbol4=FNDE
I only have room in my taxable for DGS. Would the higher ER and dividend offset the benefits of just using something simple like AVEM? I am also open to a fund that tilts more to small than AVEM without using dividends as a means for defining value.

Curious what others are doing who hold AVUV/AVDV or something similar like SLYV/DLS.
I used DGS for about 8 years and decided I wasn't comfortable with the turnover and general approach and moved to all cap value via DFEVX (hasn't worked out yet lol). I've heard that the transaction costs in the small cap EM space are significant.

I'm going to use AVEM until I feel better about a commercial option. EMGF will likely be the tax loss harvest partner. I do wish Avantis would have just come out with a SCV EM fund.
What's your allocation of DFEVX to AVEM? Or are you saying you'll use AVEM/EMGF from now on in lieu of DFEVX?
I do 3/1 Developed to EM (where there is a separate fund unlike an Ex-US fund which holds both). I can no longer contribute to DFEVX so new EM contributions go to AVEM. I'm probably 95% DFEVX and 5% AVEM right now.
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

I thought this was an interesting chart from this Paul Merriman presentation. Value tilted US portfolio vs. S&P500.

Image

The rest of the video covers performance of several common portfolio's, how important it is to be patient, and some other points.
https://www.youtube.com/watch?v=_6SEeYwlaKw&t=932s
Day9
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

Wow that graph shows a 20-year period of underperformance. I don't have my Swedroe Factor book handy, I wonder what he wrote the odds were of that in that one table that shows odds of underperformance over a given time frame?
I'm just a fan of the person I got my user name from
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Maybe it matters that the 4 fund portfolio includes large value as well. I'm not sure.
kolder
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Re: Small Cap Value heads Rejoice !!!

Post by kolder »

ER for new DFA ETFs:

DFAU - DFA US Core Equity ETF: 0.12%
DFAI - DFA Int Core Equity ETF: 0.18%
DFAE - DFA EM Core Equity ETF: 0.35%

https://www.sec.gov/Archives/edgar/data ... tfn1aa.htm

US/Int a bit lower than Avantis, EM a bit higher.

Interested to see where they stand in terms of tilt, but I imagine they will be pretty similar to the Avantis equity funds.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

kolder wrote: Thu Oct 01, 2020 10:57 am ER for new DFA ETFs:

DFAU - DFA US Core Equity ETF: 0.12%
DFAI - DFA Int Core Equity ETF: 0.18%
DFAE - DFA EM Core Equity ETF: 0.35%

https://www.sec.gov/Archives/edgar/data ... tfn1aa.htm

US/Int a bit lower than Avantis, EM a bit higher.

Interested to see where they stand in terms of tilt, but I imagine they will be pretty similar to the Avantis equity funds.
Oy. Too many options, too much switching. I’ll just stick with Avantis.
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Taylor Larimore
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DFA Funds?

Post by Taylor Larimore »

Bogleheads:

I am happy to see that DFA has reduced it's expense ratios. Does DFA still require an advisor to purchase individual funds?

Thank you and best wishes
Taylor
Jack Bogle's Words of Wisdom: "You get to keep exactly what you don't pay for."
"Simplicity is the master key to financial success." -- Jack Bogle
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